Dive Brief:
- The Science Based Targets initiative — a global organization that validates whether corporations’ net-zero goals align with climate science — updated and tightened target-setting guidelines for financial institutions this week.
- The United Nations-backed organization’s revised near-term target-setting protocols align standards for banks and asset managers with its Corporate Net-Zero Standard. This includes a requirement for financial institutions to increase their scope 1 and 2 emissions reductions ambitions and to align targets with the goal of keeping global temperature rise to 1.5 degrees Celsius, a change of a prior goal of “well-below 2 degrees Celsius.”
- This is the first time public banks and asset managers have been looped into the SBTi framework, according to the organization. The update also tightens timelines for reducing scope 1 and 2 emissions and creates criteria for financial institutions that want to set fossil fuel finance targets with options for disclosing, halting, transitioning and phasing out fossil fuel financing.
Dive Insight:
SBTi said it is in the process of developing a Financial Institutions Net-Zero Standard that will help banks and asset managers develop both near- and long-term targets. The updated criteria will go into effect Nov. 30. Until then, financial institutions can choose to submit according to either the new Financial Institutions’ Near-Term Criteria 2.0, or the former Version 1.1 of the target-setting criteria.
SBTi said the revised criteria will enable financial institutions to set “ambitious near-term emission reduction targets,” streamline coverage requirements and enhance the clarity, actionability and usability of existing criteria.
The target-setting and climate plan verifying organization said the project will support its mission and vision by expanding the amount of target-setting resources available to financial institutions. SBTi’s theory of change identifies financial institutions as “essential for providing the needed capital and engagement to help companies transition to a 1.5 degrees Celsius pathway.”
The organization also recommends financial institutions publish and set targets to increase their ratios of renewable energy-to-fossil fuel financing. Large banks like JPMorgan Chase, Citigroup and Royal Bank of Canada all voluntarily agreed to publish their green energy financing rations this spring in response to shareholder resolutions filed by the New York City Comptroller’s Office.
Financial institutions setting near-term scope 1 and 2 emissions reductions targets will have a shorter time frame to execute those goals, with the window shrinking from 5 to 15 years to 5 to 10 years. The new criteria also clarifies for banks, asset managers and private equity firms that any base year and forward-looking ambition criteria also applies to their scope 3 emissions.
The new criteria on fossil fuel financing disclosures will require financial institutions to publicly disclose the extent of their financing of fossil fuel projects and companies each year. SBTi also included a table with criteria for when to disclose, halt, transition or phase out coal company or project financing. This also includes guidelines for when institutions should disclose, halt or transition from funding oil and gas companies or projects.
However, the guidelines do not recommend phasing out oil and gas financing at this time. Any fossil fuel transition targets are expected to cover a minimum of five years, and a maximum of 10 from the dates targets are considered for validation.
SBTi also recommends institutions disclose any methane emissions attributed to their financial activities; commit to publicly disclosing the percentage of their fossil fuel portfolio companies that have transition plans aligned with keeping global temperature rise to 1.5 degrees Celsius.
“[Financial institutions] that fail to phase out financing to fossil fuel projects and companies that do not have and execute a 1.5°C-aligned transition plan expose themselves to risks of stranded assets and reputational damage,” the updated criteria said.
SBTi said it will hold a pair of webinars on June 12 to provide an overview of the new resources for financial institutions.
